Fitch Ratings has downgraded Exelon Corp.'s (EXC) Issuer Default Rating
and senior unsecured debt ratings to 'BBB' from 'BBB+ and the junior
subordinated debt rating to 'BB+' from 'BBB-'. The commercial paper (CP)
rating is affirmed at 'F2'. The ratings are removed from Rating Watch
Negative where they were placed in April 2014 following the announcement
of an agreement to acquire Pepco Holdings, Inc. (PHI) in an all-cash
transaction. The Rating Outlook is Stable. The ratings of EXC's four
operating subsidiaries are unaffected by this rating action.

The downgrades reflect the increased consolidated leverage that results
from the PHI acquisition and to a lesser extent the weak operating
environment of its competitive generation business. The higher leverage
is a product of the acquisition financing, which included approximately
65% debt and consolidation of the more levered PHI. The rise in leverage
is softened by a modest reduction in business risk from the increase in
regulated earnings. Post-merger regulated earnings are expected to
account for roughly 65% of 2017 consolidated earnings compared to an
estimated 55% without the acquisition.

KEY RATING DRIVERS

Increased Leverage: The acquisition results in a meaningful increase in
consolidated leverage compared to EXC's current and projected
stand-alone financial condition. Fitch estimates adjusted debt to
EBITDAR will approximate 4.25x - 4.5x in the first full year after the
merger compared to about 3.0x - 3.5x on a stand-alone basis. The rise in
leverage is driven by the combination of the acquisition debt to be
issued by EXC and the assumption of existing PHI consolidated debt.
Funding for the $6.9 billion acquisition plus fees, integration costs
and regulatory commitments includes approximately $4.2 billion of EXC
corporate debt and $1 billion of mandatory convertible debt (issued in
2014). Under Fitch criteria the convertible debt issued by EXC, in the
form of equity units, receives no equity credit. The remainder of the
acquisition financing consisted of common stock and proceeds from asset
sales. In addition, EXC will assume approximately $6 billion of PHI
consolidated debt.

Regulatory Concessions: To gain merger approval, EXC agreed to a number
of rate concessions in each of PHI's four regulatory jurisdictions
aggregating to an estimated $350 million - $400 million, including
customer rate credits and deferral of rate increases and funding for a
variety of customer investment funds largely related to energy
efficiency, renewable energy programs, and low-income customer programs.
Moreover the PHI utility subsidiaries deferred rate filings during the
nearly two-year merger review process that increased PHI's leverage and
weakened its credit quality.

Ring Fencing: Each of the utility commissions imposed several
ring-fencing provisions to protect the PHI utilities, but none are
considered to be onerous or to impair EXC's credit quality.

--Creation of a bankruptcy-remote special purpose entity (SPE) to hold
100% of PHI equity

--Maintenance of separate books and records

--Pepco, DPL and ACE will maintain separate debt

--The Board of Directors of the SPE will have four directors, one of
which will be independent

--The seven-member PHI board will include one director from each of
PHI's utility subsidiaries

Corporate Structure: PHI will be structured as a subsidiary of EXC and
the parent of its existing three regulated transmission and distribution
utilities.

Utility Earnings Contribution: The acquisition furthers EXC's goal of
increasing regulated earnings and lowering business risk. Post-merger
regulated earnings are expected to account for roughly 65% of
consolidated earnings from its six regulated utilities compared to an
estimated 55% - 60% without the acquisition. Even without the PHI
acquisition the regulated earnings contribution was expected to increase
due to significant amount of planned utility investment, particularly at
Commonwealth Edison Co (ComEd).

Competitive Generation Business: The operating environment for EXC's
competitive generation business is expected to remain challenging with
sluggish demand and low natural gas and power prices expected by Fitch
to persist for several years. Favorably, the business is well
capitalized and the credit profile has stabilized during a low point in
the commodity cycle. In addition, management employs a three-year
hedging strategy that moderates earnings and cash flow volatility.

KEY ASSUMPTIONS

--Relatively flat load growth

--Each of the PHI subsidiaries file rate cases in 2016 and every 12-15
months thereafter

--Commonwealth Edison Co. formula rate plan updated annually

--$1 billion in cash from the remarketing of junior subordinated debt in
2017

--Henry Hub Natural gas prices as of Dec. 31, 2015

--Nihub and PJM forward power prices as of Dec. 31, 2015

RATING SENSITIVITIES

Positive Rating Action: An upgrade seems unlikely over the next few
years given the rise in leverage associated with the PHI acquisition,
but could occur if on a sustained basis debt/EBITDAR is reduced below
3.5x while lease-adjusted FFO leverage is below 4.25x.

Negative: Ratings could be lowered if lease adjusted FFO leverage
exceeds 4.5x on a sustained basis. A renewed emphasis on non-regulated
investments could also have an adverse effect on ratings.

LIQUIDITY

Cash flow from operations, CP borrowings and committed bank credit
facilities provide ample liquidity. EXC and each of its operating
subsidiaries maintain separate credit facilities and CP programs.
Syndicated credit facilities aggregate to $8 billion (excluding minority
and community banks) and bilateral agreements an additional $400
million. The syndicated facilities include $500 million at EXC, $5.3
billion at Exelon Generation Co., LLC (Exgen), $1 billion at ComEd and
$600 million each at PECO Energy Co. (PECO) and Baltimore Gas and
Electric Co. (BGE). The syndicated facilities support CP programs of
equal size and have five-year terms.

EXC also operates a corporate money pool with subsidiaries Exgen and
PECO. EXC can lend to the money pool, but not borrow from the pool.
ComEd and BGE are excluded from the money pool due to ring fencing
measures.

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